The Federal Budget: Broad Outlines, Much Uncertainty

With most appropriations bills still unfinished and a deadline for
raising the federal debt ceiling looming, Congress and the Clinton
Administration appear to be headed toward a budget showdown, leaving
spending decisions vital to Penn and its students unsettled.

In the current but unfinished versions of House and Senate spending
bills, most scientific research, student aid, and several other programs
of importance to higher education have fared relatively well compared
with many other areas of federal spending, against a backdrop of
reductions aimed at eliminating the Federal budget deficit by 2002.
Included among the exceptions to this general rule are several areas,
such as the National Endowment for the Humanities, environmental
research programs, and research sponsored by the Agency for Health Care
Policy and Research, which are slated for substantial cuts.

"The results of these Congressional actions so far are mixed, but
are generally more favorable toward scientific research and student aid
than might have been expected, given the 'glide path' to a balanced
budget that Congress adopted in May," said David Morse, Assistant Vice
President for Policy Planning. "Nevertheless, the funding decisions made
so far this year suggest that the growth in federal support,
particularly for scientific research, that we have experienced over the
past quarter century, is unlikely to continue." And, said Mr. Morse,
"even though the outlines are clearer and better than they appeared this
spring, no one yet knows where we will end up this year, in terms of how
higher education and the University will ultimately fare."

Congress and President Clinton appear to be far apart on several key
spending bills, two of which are of great interest to faculty and
students: Labor, Health and Human Services, and Education, which
includes funding for student aid and the National Institutes of Health,
and VA, HUD, and Independent Agencies, which contains funding for the
National Science Foundation and NASA. The President has signaled that he
would veto these bills if they reach him in current form, since they
eliminate or substantially cut several key Administration programs or
contain legislative directives that he has described as unacceptable.

Last week, the House and Senate passed "budget reconciliation"
legislation that includes a tax cut and reduces spending in federal
entitlement programs, including Medicare, Medicaid, student loans.
These bills, which restructure and reduce federal support for medical
care and training at academic medical centers and for student loans, are
also Presidential veto targets. President Rodin and Trustee Chairman
Dr. Roy Vagelos have written to the President and to the Congressional
leadership urging them in particular to sustain support already agreed
to for the NIH in any final budget agreement.

This already volatile political battle is further fueled by
uncertainty about how Congress and the President will deal with the
statutory limit on the national debt. The debt ceiling of $4.9 trillion
will be reached around mid-November, after which the government may have
insufficient funds to make interest payments to holders of federal
bonds. The Congressional leadership has signaled that it may attach
legislation to extend the debt ceiling to the budget reconciliation
package.

Thus, the President is faced with an enormous "Hobson's choice."
Congress will not send the appropriations, budget reconciliation, tax,
and debt ceiling bills to the President, either separately or
collectively, until close to November 13, when the current, short-term
funding bill, known as a "continuing resolution," expires. This will
force the President to choose between a shutdown of government services
and spending, along with technical default on the federal debt, and
acceptance of spending policies and directives he has stated are
unacceptable--the so-called "train wreck" scenario. The resolution of
this standoff could result in a further reordering of federal spending
priorities, with uncertain effects on final funding of student aid and
research programs, and on support for medical education and training, at
Penn and peer institutions.

In late September, Congress and the Administration bought
additional time by agreeing to a continuing resolution that permits
federal spending between October 1--the beginning of the Federal fiscal
year--and November 13. In general, the terms of this short-term
continuing resolution reflect funding decisions made last year, with
discretionary spending programs of student aid and research supported at
levels between 5% and 10% below those adopted by Congress in FY 95.

Programs like the National Institutes of Health, Penn's largest
research sponsor, which fared relatively well in the initial rounds of
Congressional decision-making for FY 96 (with the House proposing an
increase of 5.7% and the Senate 2.7%), are less favorably treated under
the terms of the current continuing resolution. The same is true for
the National Science Foundation, which Congress has initially slated for
roughly the same amount of support as last year, and for many of the
federal student aid programs. For programs, like the National Endowment
for the Humanities, that Congress has targeted for reductions of greater
than 10% in its initial action on FY 96 spending bills, the conditions
governing the current continuing resolution are more favorable.

The federal agencies that fund research at Penn have indicated
generally that, if the budget impasse is resolved by mid-November, there
should be little or no effect on extra mural research awards. However,
if a longer-term continuing resolution, under conditions similar to
those of the short-term spending bill, is part of a final compromise,
extra mural awards could be affected.

We will continue to keep the University community informed of the
form and substance of these deliberations, and their likely effects on
Penn, as the budget picture in Washington becomes clearer. Those
interested in the status of particular funding issues or programs should
call the Office of Policy Planning and Federal Relations at 898-1532.

-- Carl Maugeri
Associate Director Federal Relations

Proposed appropriations for research in FY 1996: % increase/decrease
compared to FY 1995